mm2.3.16

 

 

Dear ljm4cy,

While I think you’re cheating here, trying to sneak in a bunch of questions under one premise, I accept your challenge!   However, I’m monkeylogogoing to have to break it up into sections.

Boren’s Statement:

I actually was thinking the same thing when I read it originally and have not been able to find any numbers that support his statement. The SEC Network is around six million per year per school currently, on year one of a 20 year, $6 Billion deal the SEC made with Disney for all of their content.  That means 42.5% of their inventory is a combination of Tier Two and Tier Three (SECN) making about 25-30% of their total revenue.

The Big 12 only has about 17-23% of its inventory in this Tier Three area, the rest is already sold to Disney/Fox.  Thinking it could make the same amount as the SEC in a combined network with less inventory than used for the SEC Network seems overly optimistic especially considering that inventory is a volume sale and, as mentioned, they’ve already sold it all, just in other ways.  The shared approach in the SEC normalizes revenue, so, in the Big 12 the schools with the larger fan bases can make enough on their member controlled rights to rival or exceed the SEC, but the smaller schools will make less.   However, they still make something.

The only way I can figure that the Big 12 makes $6 million more per team with a network is if he assumes that having no network provides zero revenue, as opposed to already selling the member controlled rights.  Or, perhaps someone like Fox has already floated them some numbers for a 12 team network with additional inventory on it.  However, I am not sure if it would include the decrease in the other Tier One and Tier Two contracts due to having less inventory on them as the extra games have to come from somewhere.  In a sense that would be taking from the left pocket to pay for the right.  At the end of the day, inventory is inventory and it is finite.

It could also have to do with inflation.  Each of these media deals increases by about 4%, give or take, per year over the life of the deal.  Four million dollars today has the same value, e.g. spending power, as about five million dollars five years from now.   If he’s quoting an average of a mythical long term contract (most conference network deals are for 20-30 years) that some media consultant threw on the table, then it could get silly quick, much like sports reporters inaccurately compare media deal averages all of the time.

At this point, the best I can say is, no, I have no idea where it is coming from.   It doesn’t make a lot of financial sense.

Independent Confirmation:

The comment about the range of revenue each school receives from their member controlled rights, while repeated by Bowlsby, was actually released in a Big 12 Press Release written by Wendell Barnhouse in May of 2014.  I’ll quote:

The conference will distribute approximately $212 million to its member schools. Eight of the Big 12 schools each will receive approximately $23 million. The revenue distribution that each school receives doesn’t include the money each institution gains from third-tier media rights. That revenue varies from $3 million to $15 million.

Since that is an official release, I’d put it down as far superior to rumor.  Independently, I’ve received a wide variety of answers on the subject per school.  On the lowest end I heard that Fox’s agreement to buy back unused member controlled rights was “around $3 million, give or take” from someone in a sports marketing firm that represents several Big 12 schools and yes it increases by the same inflationary figure as the rest of the contract yearly.   This sets the floor for those rights, since why sell them to someone else for less if you know you can make around $3 million for no work.  It also makes sense that the numbers would work out this way.

If you asked regional carriers, (and there are over 200 of them in the US) they would rather have targeted inventory in specific markets than more national channels.  One, someone like Oklahoma State has a lot more support in Oklahoma and the bordering states than it does in New Jersey and, two, higher local viewership generates higher local advertising for the carrier.   That’s how ESPN paid as much as it did for Texas’ rights, even if it is only ever showed within the state’s borders.  Fox has a lot of regional channels in the Big 12’s footprint and it wants more local inventory, $3 million is a steal for a football game, a handful of basketball games and all the non-revenue content you want to fill out empty inventory blocks in the schedule.

Comparison to Pac 12 and ACC

Yes, the Big 12’s media revenues, when you add in the member controlled rights, are slightly lower than the Big Ten and SEC on average, but are much closer to those two than they are to the Pac 12 and ACC.   However, this gap between the Big Ten/SEC and the Big 12 is due to the Big 12’s Tier One media deal being undervalued, not because of Tier Three inventory, e.g conference networks.

While the ACC’s situation is a bit different, selling all of their inventory to Disney to increase their revenue a bit with expansion, I’d caution using the Pac 12’s figures currently as a guide to future revenue.

BTN, SECN, and LHN’s investment is born by the network partner with the inventory rights being a line item on the operating budget.  While the Big Ten has an ownership stake in BTN, the SEC, like Texas, doesn’t own its network, it has provided its branding and inventory to a network fully owned and operated by ESPN.  (Fun fact: the SEC Network’s deal is based on and is nearly identical to the Longhorn Network deal, just bigger)  This is how most media deals work because universities hate risk.   They want as much exposure as they can get and as steady of a paycheck as you can provide.   Extreme fluctuations, whether it high or low, are the bane of the budgeting process.  In these cases, the entities are paid a set amount over 20-30 years, guaranteed no matter how well or badly the channel does.

The Pac 12, on the other hand, has no network partner in their conference network.   They started it up themselves.  This means all of the initial costs were born by the fully owned network, not a startup partner.  All the risk and all the reward are the Pac 12’s to bare.  Iowa State took a similar approach with Cyclone.tv.   While they partnered with Mediacom, the first couple years of revenue were invested into facilities and equipment, not as a check to the athletic department.  In short, they gave up short term revenue for long term gains.

Additionally, the Pac 12 doesn’t need as much distribution as BTN or the SECN because they earn 100% of the revenues.  Instead of just being paid a set amount, which normally comes out to be around 40-50% of network profits, the Pac 12 splits profits with the schools.   Yes, last year it only came out to be $1 million per school and, yes, the Pac 12 Network has egregiously high operational costs for a variety of unnecessary reasons, but as investment decreases, profits increase.  Since you don’t need to build new studios or buy new cameras every year, you should see a steady upward trend in revenue over the next five years.

2015-16 Revenue Estimates

Instead of taking your numbers I’m going to provide a few estimates from scratch.  First, there is something we need to just accept when we do these: what each conference sells is not the same.

For instance, when the ACC signed its new deal with ESPN, it included nearly all of their revenue and non-revenue male and female sports, including soccer and lacrosse, and signage at major events.  So all of the ads on the floor for the ACC Basketball Tournament or naming the game, like the “ACC Tournament Presented by Waffle House” for instance, are sold by ESPN and prepaid to the ACC as part of their contract.  Like media deals, it doesn’t matter if ESPN has a gigantic profit off of them or loses money, the ACC is paid the same.

Additionally, the SEC has a similar structure, with ESPN taking an active role in some sales that are normally covered under IMG or Learfield contracts.   (This is also how ESPN pays for the Playoffs, the only money that the host bowls get to keep is 15% of the gate, everything else goes to ESPN.)  The SEC, like all of the other Power Five except the Big 12, also has a conference championship game in football that is valued within these media deals.

Post season bowl games that are outside the playoff structure are also negotiated individually between the conference and the bowl.   There is nothing saying that each conference is paid equally.  In the past the SEC leads the conferences on the amount of money coming in from their bowl tie-ins while the Pac 12 brings up the rear.

Lastly, NCAA payments for the men’s basketball tournament vary yearly based on a six year run.   The more tournament games a conference plays over multiple years, the more money they make into future years.  If you want a fun project, take the numbers below and divide them by about $250,000 and you’ll see how many tournament games each conference has won in the past six years.

All of these combined can make this look like someone is paid more for their media deal than they are, when in fact they either sold something another conference did not, sold it differently, or is paid higher in one area over another.  Oh, and to make it even less predictable it can vary yearly and conferences may stockpile money for future projects.   The Big 12, for instance, has been investing $10 million a year in a legal fund to be ready for any issues that may come up in the future.   This obviously decreases their revenue comparisons by reducing this shared investment of a million per team per year on top of standard conference operating costs.
With that being said, here are some rough estimates:

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Some Notes:

– These are average distributions, but many conferences don’t average their distributions.  Big Ten schools not named Nebraska, Rutgers, and Maryland should make around $35 million this year, while those mentioned make much less, thus the lower average in the chart. ACC schools don’t split the post season evenly so you get a wide range of payouts, but assume they will be around this amount and that Notre Dame makes about a quarter share.

– I was very, very generous with the ACC’s media estimation and rather conservative with the Big 12’s.   When I put in my original projections for the ACC, they came out with per team average that was abysmal and not worth signing a Grant of Rights over.  I’m waiting to see what they release this year to fine tune the projections.

– T3 Extra is to take into account the Pac 12 Network, where I projected $3 million per team (up from $1 million that you mentioned), and the Big 12’s member controlled rights where I gave $45M total.   To get this number I removed Texas’s LHN revenue, then averaged the totals of all of the other nine schools and multiplied by ten.  Obviously it is a made up number for comparison purposes only, but some schools will be a little less and some will be much higher.  This difference, however, will never show up on a Big 12 revenue press release, which means the bulk of media reporting on it will have no idea how to cover it.

– The Playoff figure was calculated for a previous article, you can get the details here.  No conference gets a bigger boost from the playoffs than the Big 12.  This year it should be around $2.2 million more per team than the Big Ten, who generated a higher total over all with three teams in the playoff bowls.

– To your point on adding a conference championship game, that basically is a net wash, due to splitting the Playoff Revenue with two more teams.  For example, if a championship game is worth $24 million, if you expand with big teams, it would add $2 million more per team in revenue.  Expanding with smaller teams decrease that amount.  Having to split $87.6 million twelve ways instead of ten, however, reduces each team’s cut by $1.5 million.  Not exact, but close enough to not have to worry about losing or gaining revenue from either option in expansion.  No one will lose money, but they won’t make more either.

Hope that answers your question(s), cheaterpants.

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